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Monday, August 29, 2011

Beyond The Corporation - David Erdal

I’m not reviewing every book I read on holiday but this one was interesting. Beyond the Corporation: Humanity Working by David Erdal is a passionately argued manifesto for employee owned businesses. It’s not a balanced or wide-ranging economic analysis, it’s more of a polemic, but it did make me think …

But first a quick (and relevant to this topic) plug for my niece's restaurant in Bristol, The Runcible Spoon, not just because it's a great restaurant (it is) but because watching her and her mates set it up as a co-operative and with alernative priorities was, frankly, a little bit inspirational and one of the reasons for my interest in this book.

The Runcible Spoon is a quirky, indie, classy restaurant in the ‘People’s Republic of Stokes Croft’, just around the corner from the much disputed and battered branch of Tesco that was at the centre of the Bristol riots of earlier this year (not this recent set of riots). We like a riot in Bristol.

She and 5 friends set it up as cooperative, six of them with six equal shares of the business. Because I have always secretly wanted to have a restaurant too I took an interest, offering to help with carpentry and finance. Only my carpentry skills were required. My offer to help with finance was politely declined. Rightly it transpired.

The more time that I spent with them thought the more I could see that the way they were setting this business up was different to the way I would have done it. The standard ‘build a business, fatten-it up, sell it’ that so many start-ups set out with was not going to be the way of the ‘Spoonies’.

First off they wanted it to be a true reflection of their personalities; so it's quirky, artsy, a bit boho, British, passionate about good food with ingredients locally sourced, organic and fair trade where possible in a limited, seasonal menu. They weren’t trying to fill a gap in the market - they were building something true to themselves which was a bit different.

But it's the attitude to the business that is so interesting. For example, as soon as possible they organised their work-rota so that they could work 30 to 35 hours a week each and have some sort of life outside of the restaurant. This, of course would be anathema to an outside investor who would want to see them working 80 hour weeks to make the business grow as quickly as possible.

Which would kill it. And if the financing structure wasn’t right it would probably bankrupt someone (not the investor) along the way too. There is a different way of thinking about business and there are more and more people out there who see the current variant of capitalism as being bereft of a future itself.

Which brings me back to the book ….

Erdal characterises the current failures of capitalism to sustain flourishing businesses which reward and empower everyone who works for them as something of a crisis and he is unequivocal in his condemnation of the collusion between investment houses and senior executives in denying employees the right to participate in the success of the business that they sustain with their labour and expertise.

Senior executive pay and rewards for the investment community have increased out of all proportion to the value created by a company and the gulf between rich and poor is still alarming in the UK and US in particular. Companies built up over decades and even centuries are being destroyed by financial structures designed to enrich the few at the expense of the many.

Since 2008 we have seen household name after household name collapse under the burden of debt foisted upon them in the form of ill-conceived financing structures conceived in the boom years, with the lay-offs and human misery that follow.

In the UK we have said bye bye to Woolworths, Habitat, Zavvi, Borders to name but a few that have a direct connection to media sector that I work in. There are many many more, more than 100 this year in the UK in fact.

So far, a bit ‘commie’ sounding, but the solution that Erdal proposes is not nationalisation or state ownership (which is not even working in Cuba any more) but employee ownership; a proven and successful model with flagship success stories like The John Lewis Partnership and several thousand more in the UK, USA and particularly in Spain where co-operative and employee owned businesses have flourished in the Basque Region around Mondragon and its federation of workers co-operatives.

Erdal inherited his family-owned, specialist paper manufacturing business and clearly felt a keen sense of unfairness in a process which enriched him personally but left the people who had worked at the business for so long with nothing. In the face of opposition from advisers, bankers and lawyers he set about placing the company into employee ownership - selling it to its employees but using the balance sheet of the company to finance the acquisition.

Everyone was happy - he presumably trousered a healthy sum for the sale of the business to the employee trust (though to be fair probably not as much as he could have trousered had he sold the company in a more conventional way) and the employees got to take control of their destiny and livelihoods.

Erdal is eloquent on the benefits to the employees and the enterprise of this ownership structure - once governance is sorted out (not without its challenges) the organisation seems genuinely to be able to act in its own interests and the interests of all its employees in a way that many publicly or private-equity owned business cannot.

Erdal does see employee ownership a cure for all societies ills and the book is largely silent on what happens when employee ownership goes wrong, which it must now and again.

The book also represents the point of view of someone who has inherited a business rather than built it up from scratch by taking huge personal risks for example. There is a subtext of privilege throughout the book, benevolent privilege but privilege nevertheless.

And there is a paradox in that the employee ownership model that the book describes relies on businesses being built up using a more traditional approach and then being transitioned into an employee ownership structure.

There needs to be more discussion of how employee ownership can work with a start-up culture. It is touched on, especially looking at the Spanish, Mondragon case studies, but not enough.

In my opinion we are entering an era when ‘big business’ is unlikely be able to support everyone who is either entering the job market after finishing their eduction or leaving it at retirement. More and more people are going to be starting their own businesses to provide a living or pension for themselves.

Employee ownership is clearly something that these entrepreneurs should be considering when starting these business and this book is not very helpful to them unless they are already in a company which is looking to transition to that model.

So hats off to my niece and her mates at The Runcible Spoon. I hope it continues to work as well as it is now and makes them happy and keeps them in a style to which they would be happy to become accustomed. It’s a fantastic place to eat and if you are ever in Bristol and hungry I highly recommend it.

You’ll see some lovely shelves made out of scaffolding planks when you are there, that was my contribution and I was very happy to make it.